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The RTVUE showed that petitioner reported negative adjusted
gross income in the amount of $2,235,940 and a total tax
liability in the amount of $13,733. The parties do not dispute
that the amounts listed on the RTVUE correctly reflect the
amounts reported on petitioner’s 1994 return. Petitioner did not
report any dividend income for the 1994 tax year.
On October 7, 1997, respondent sent petitioner a Form 4549-
CG, Income Tax Examination Changes, together with a Form 4564,
Information Document Request, requesting copies of petitioner's
1993 and 1994 tax returns. At that time, respondent also
requested that petitioner verify the net Schedule E losses in the
amount of $973,006 and net operating losses in the amount of
$1,795,146. Even though the examining agent contacted both
petitioner and petitioner's counsel several times, neither
provided copies of petitioner’s 1993 and 1994 tax returns nor
verified the losses as requested.
Respondent mailed a notice of proposed income tax changes
(30-day letter) to petitioner on November 6, 1997. Respondent
concluded that petitioner had received $356,124.92 from Levitz
and that only $47,579.12 of this amount was a nontaxable return
of capital. Respondent also concluded that petitioner had
overstated his net Schedule E losses in the amount of $973,006
and net operating loss deductions in the amount of $1,795,146.
Respondent calculated that petitioner had a corrected taxable
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